Brussels, 30/06/2010 (Agence Europe) - On Wednesday 30 June, the European Commission presented more concrete proposals for enhancing the coordination of economic policies, particularly the Stability and Growth Pact (SGP). In its communication, the Commission proposed that European economic governance instruments be adapted by setting up a “European Semester” and by toughening up sanctions to prevent and correct slippage in budgetary policies, macro-economic policies and structural reforms.
Its proposals are based on the ideas highlighted in its communication of 12 May (EUROPE 10139) and part of the recent discussions held at the European Council (EUROPE 10162), as well as the main orientations set out by the working group at its most recent meeting (EUROPE 10155). These involved the 27 member states (even though eurozone countries are more affected) and do not require amendments to the treaty. During its next meeting on 13 July, the Ecofin Council is expected to confirm its intention to set up a European Semester in January 2011 and to review the SGP code of conduct (which is contained in an annex to the communication). This is what the Commission is hoping and it will make formal proposals in this connection next September or October.
In a press statement, José Manuel Barroso stated that “a European Semester will help give us coherency in European supervision. It is both logical and necessary. By way of a system of incentives and sanctions which will be applied more upstream, we are providing ourselves with the action instruments we require”. Olli Rehn, the Commissioner for economic and monetary affairs said that they needed greater European coordination and more robust application of the rules that they had set themselves, including dissuasive sanctions to prevent slippage and regain trust.
Synchronised supervision. The European semester will be at the heart of the economic policies coordination cycle. According to this mechanism, member states will have to simultaneously present the Commission with their stability or convergence programmes (the contents of which will be adapted to the tax year in question) and national reform programmes, so that ex ante coordination can take place. The communication explains that specific nature of national economic policies will be ensured at a European level by a policy guideline, before final decisions on the following year's budget are taken in the member states. Commissioner Rehn again informed the press that this was not about interfering with the sovereignty of national parliaments, “but making sure national budgets are consistent with European commitments of MS and will not put at risk financial stability in Europe”.
At a practical level, the European Semester will begin in January of each year with an “annual growth survey” prepared by the Commission and presented to the European Parliament. The European Council will give its strategic orientations at the end of February, which member states will take into account when presenting their stability or convergence programmes and national reform programmes in April. The Council will then adopt, at the beginning of July, a single set of country specific recommendations. In the second half of the year, member states will finalise their national budgets and during the following annual growth evaluation, the Commission will check whether member states have taken into account the orientations formulated by their partners. At a level of budgetary discipline, these orientations will particularly emphasise the following year and provide clear indications if the objectives and policies on which they are based are appropriate, explained the Commission.
Macro-economic aspects. The Commission is proposing a two-phase approach: - the preventive aspect, with regular annual micro-economic imbalance risk assessments. This will include a warning mechanism, based on the scoreboard including a series of indicators (balance of current account, the position of external debt, real exchange rates based on unit labour costs etc.) and a qualitative analysis. Warning ceilings will be defined to each indicator. Different scoreboards will be established for Eurozone countries and those outside of it. The cases of serious imbalance, the Commission will be able to propose that the country is in an “excessive imbalances position”, which corresponds to the second phase; - the corrective aspect, which were applied to all 27 member states and implies increased supervision. In this case, the Commission will effectively adopt political recommendations on the basis of Article 121(4) and Article 136 for countries in the euro zone. For the latter, a specific mechanism in the event of repeated non-respect of recommendations could be envisaged. Repeated non-respect of recommendations would in any case be considered as a serious and additional factor for moving to an examination of the budgetary situation of the country within the excessive deficit procedure opened with the country in question.
Structural reforms. This idea consists in promoting implementation of the EUROPE 2020 strategy objectives. Based on the national reform programmes, the Commission will supervise the progress of each country in view of attaining these objectives. In the event of shortcomings, the Commission could adopt specific recommendations for each country and even send them a warning (see above).
Taking the debt into account. The Commission wants the debt to be better taken into account in the application of the SGP. In connection with the preventive aspect of the pact, the Commission is proposing that a swift adjustments trajectory is established for the Medium Term Objective for countries presenting high debt or where future developments in this sphere appear at risk. With regard to the corrective phase, the Commission is proposing to define an appropriate debt reduction pace, together with clear thresholds. Member states whose debt exceeds 60% of GDP might have to face excessive deficit procedure if the debt reduction trajectory does not reach these ceilings for the period in question. Similarly, a return to budget deficit under 3% of GDP might not be sufficient for leaving the excessive deficit procedure if, at the same time, the debt reduction trajectory is insufficient.
Such decisions will not be taken without overall qualitative analysis. This will determine whether debt remains close to 60%, if the disparity is temporary and will take into account other factors reflecting future debt risks. This particularly involves the level and change in private debt, to the extent that it may represent an implicit liability for the government, as well as other parameters influencing the debt, such as inflation and interest rates etc. “At the end it is the public debt that has to be taken into account for the EDP”, insisted Commissioner Rehn. In the event of non-respect of recommendations, sanctions might, despite everything, still be applied.
Sanctions. According to Commissioner Rehn, the objective is to have as broad a range of possibilities for using incentives and sanctions as early as possible in the procedure for all member states. At the preventive level (when a member state has not made sufficient progress towards the MTO end periods of economic expansion), two incentives/sanctions are proposed: - Eurozone member states might be temporarily obliged to deposit an amount in a returnable account; - the payment of cohesion policy funds might be made conditional on structural and institutional reforms in this domain. In the context of the corrective phase (when a member state is effected by excessive debt procedure), the Commission is proposing that in addition to the range of current sanctions (Article 129.11), the possibility of reducing EU budget funding is included. The sessions will not, however, affect European fund beneficiaries but the payments made to member states (which will be asked to pay the sums to beneficiaries out of their own resources without obtaining reimbursement later on from the European budget, when they normally act as intermediaries. Some of the European funding targeted includes spending from cohesion policy, common agricultural policy and fisheries.
Two kinds of financial sanctions could be envisaged earlier in the procedure: - at the time of establishing excessive deficit procedures (Article 126.6), a suspension of commitment appropriations for multiannual programmes or a reorientation could be imposed (without an immediate impact on payments, this would leave the country concerned the time to correct matters); - in the event of non-respect of the initial recommendations aiming to correct the excessive deficit (Article 126.8), budgetary commitments for the ongoing year could be cancelled (the member state in question would therefore not receive any payments). (A.B./transl.fl)